in an action for wrongful foreclosure, the trial court had properly taken
judicial notice of MERS's status as the lender's nominee; (2) the
borrower's amended complaint did not state a cause of action arising from
MERS's alleged improper assignment of the deed of trust; and (3) the
borrower failed to state a claim for breach of an alleged foreclosure
forbearance agreement, because the borrower did not attach to her
complaint a copy of the document that purported to amend the agreement.
A copy of the opinion can be found at:
This case arose from a mortgage loan under which Mortgage Electronic
Registration System, Inc. ("MERS") was identified in the deed of trust as
the nominee of the lender. The borrower defaulted on her loan and, at
some point thereafter, MERS assigned "all beneficial interest" under the
deed of trust, including the note, to HSBC Bank USA, N.A. ("HSBC"), as
trustee. Wells Fargo Bank, N.A. ("Wells Fargo"), as the servicer of the
loan and, acting on behalf of HSBC, subsequently recorded a substitution
of trustee naming another defendant as the trustee, and allegedly
foreclosed on the property and sold it.
The borrower filed suit seeking damages and an order voiding the
foreclosure suit and her debt. The focus on appeal was the fourth amended
complaint against Defendants-Respondents, Wells Fargo and MERS. The
borrower alleged that the foreclosure was supposedly unlawful because: (1)
MERS supposedly lacked the authority to assign the deed of trust and note
to HSBC; and (2) Wells Fargo had purportedly breached an agreement with
the borrower not to foreclose.
The borrower alleged she had a forbearance agreement under which Wells
Fargo would suspend foreclosure proceedings if the borrower made a certain
number of specified monthly payments. The forbearance agreement also
provided that failure to make the required payments permitted Wells Fargo
to terminate the agreement and to proceed with foreclosure. Soon after
entering the alleged agreement, however, the borrower received a letter
(the "March letter") from Wells Fargo stating that the "monthly mortgage
payments were being reduced . . . for the next six months." In
accordance with the March letter, the borrower submitted a reduced payment
amount. Wells Fargo then allegedly refused to accept the payment as
satisfaction of the borrower's obligations and proceeded to foreclose.
The trial court ordered the borrower to attach a copy of the purported
"Special Forbearance Agreement" to her fourth amended complaint. The
trial court then sustained Wells Fargo's demurrer without leave to amend
partly because the fourth amended complaint failed to show reliance on the
forbearance agreement, as the borrower attached only the original
forbearance agreement to her complaint, but not a copy of the March letter
that purported to amend the agreement.
With respect to MERS, the borrower alleged among other things that MERS
was not the "true" beneficiary under the deed of trust, never had
ownership of the promissory note, and never held an assignable interest in
the note or deed of trust. In its demurrer, MERS argued that the
borrower's allegations were contradicted by copies of the recorded
documents MERS submitted to the court, including the assignment of the
deed of trust. The trial court took judicial notice of these documents
and sustained the MERS demurrer without leave to amend. The trial court
noted that the borrower's claims did not state a cause of action against
MERS because the "only apparent grounds for suing MERS are the allegations
that the deed of trust improperly named MERS as nominee and beneficiary,
and that there was no physical delivery of the note to HSBC."
The Court of Appeal agreed with the trial court in all respects.
First, the appellate court rejected the borrower's argument that it was
error to take judicial notice of the recorded real property documents
attached to MERS's demurrer and noted that where the authenticity of the
documents is not being challenged, it is permissible to take judicial
notice of the legal effect of the documents. The Court of Appeal cited a
number of court decisions that "establish that a court may take judicial
notice of the fact of a document's recordation, the date the document was
recorded and executed, the parties to the transaction reflected in a
recorded document, and the document's legally operative language, assuming
there is no genuine dispute regarding the documents' authenticity." The
Court also noted that, contrary to the borrower's assertion, "MERS's
status as beneficiary was not the type of fact that is generally an
improper subject of judicial notice . . . since its status was not a
matter of fact existing apart from the document itself." Instead, the
Court noted, "MERS was the beneficiary under the deed of trust because, as
a legally operative document, the deed of trust designated MERS as the
beneficiary." The Court also observed that court decisions have generally
found that the use of MERS as beneficiary does not invalidate otherwise
proper foreclosure sales.
Also rejecting the borrower's argument that MERS had the burden of proving
that a valid assignment had occurred, the Court noted that the nonjudicial
foreclosure process is afforded a "presumption of regularity." Moreover,
the Court stated that, contrary to the borrower's assertions, "the lack of
a possessory interest in the note did not necessarily prevent MERS from
having the authority to assign the note." The Court noted that as the
lender's nominee, MERS had the authority to act as the lender's agent and
that the complaint failed to show that MERS, as the nominee, lacked the
authority to make the assignment of the note on behalf of the lender.
The Court also pointed out that in order to state a claim that the
foreclosure sale was invalid because HSBC lacked the authority to
foreclose, the borrower was required to allege not only that the MERS
assignment was invalid, but also that HSBC did not receive an assignment
of the debt in any manner whatsoever, which the borrower failed to do.
The Court observed that, unlike assignments of security interests,
assignments of debt are commonly not recorded, and the original "lender
could readily have assigned the promissory note to HSBC in an unrecorded
document that was not disclosed to the [borrower]." The borrower had also
failed to demonstrate how she had been prejudiced by the MERS assignment,
especially in light of the general expectation that the promissory note
would be assigned and that her obligations under the note to pay remained
unchanged. The court also rejected the borrower's contention that the
deed of trust was ambiguous.
As to the claim against Wells Fargo for the alleged violation of the
forbearance agreement, like the trial court, the Court of Appeal noted
that the borrower had failed to attach a copy of the March letter to her
complaint even though the trial court granted her leave to amend on
condition that she attach a copy of the forbearance agreement to her
complaint. Noting that ordinarily the borrower would not be required to
attach a copy of the March letter to the complaint, the Court pointed out
that in light of the trial court's previous ruling on the earlier
demurrer, the borrower was required to attach a copy of the original
forbearance agreement as well as the March letter, which purported to
amend the forbearance agreement on which she based her claim.
Finally, the Court also concluded that the borrower's complaint did not
state a claim for promissory estoppel, because the borrower had given
proper consideration in exchange for Wells Fargo's promise in the
forbearance agreement not to foreclose.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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